Banking Alert: FASB Eliminates TDR Guidance for Creditors

By Joseph Jalbert April 4, 2022

On Thursday, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.  The ASU eliminates the recognition and measurement guidance related to troubled debt restructurings (TDR) for creditors that have adopted Accounting Standards Codification (ASC) Topic 326 (commonly referred to as “CECL”).  Instead, institutions will apply the recognition and measurement guidance contained in ASC 310-20 to determine whether a modification results in a new loan or a continuation of an existing loan.  Further, although the concept of a TDR is being eliminated, institutions will be required to enhance disclosures about loan modifications for borrowers who are experiencing financial difficulty.

The guidance also requires public business entities to present gross write-offs by year of origination in their vintage disclosures.

For institutions that have already adopted Topic 326, the amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.  For entities that have not yet adopted Topic 326, the effective date of this ASU is the same as the effective date of Topic 326.  The amendments in this ASU should be applied on a prospective basis; however, institutions have the option to apply a modified retrospective transition method as it relates to the recognition and measurement of TDRs, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption.

The full ASU can be found here.

If you have any questions or if you would like to further discuss any of these items in more detail, please contact Joseph Jalbert or your BNN advisor at 800.244.7444.